Artificial-intelligence evangelists such as Sam Altman want to reshape the world, but they need mountains of money to do it. That is sparking a modern-day gold rush on Wall Street.
Tech and power companies are raising cash every which way: issuing shares, loans and bonds on publicly traded markets and in private deals. Large firms, or hyperscalers, such as Amazon.com and Microsoft could easily spend about $3 trillion by 2030 to build and operate data centers for their businesses, according to BlackRock Investment Institute.
The trick for financiers is avoiding the losers in a new industry that can turn treacherous on a dime, as it did last week when Chinese upstart DeepSeek triggered a selloff in AI stocks. The recent frenzy echoes previous bonanzas such as fiber-optic cable, which boomed in the 1990s, busted in the 2000s and ultimately paid out. Fracking for oil and natural gas went through a similar cycle over the past 15 years.
Here’s a look at some of the big financial bets being placed in the new digital economy:
Blue Owl builds a Stargate
Stargate, a joint venture between Altman’s Open AI, Oracle and SoftBank, will start with a data center in Abilene, Texas, but none of the partners ponied up the money to build it. Blue Owl Capital, an up-and-coming private-fund manager, provided the billion-dollar bankroll.
The deal started with a cold email Blue Owl sent to Oracle 18 months ago. Best known for its private-credit funds, Blue Owl had grown quickly through acquisitions, and its global real-estate head, Marc Zahr, had an idea to expand even faster through data centers.
Oracle responded in 24 hours to the email and agreed to meet. Company founder Larry Ellison had adopted a strategy of finding financial partners to build data centers to compete with bigger tech giants in AI.
The companies hashed out a deal in six months. Blue Owl would invest $1 billion and raise a $2.3 billion loan to build the Abilene facility. Oracle leased the data center for 15 years and shouldered all tax, insurance and maintenance expenses. The project includes its own natural-gas power plant, a crucial feature because there is not enough electricity in the U.S. to supply coming data centers.
Blue Owl controls about $13 billion of data centers and is targeting $50 billion by December 2026.
Digital Realty’s big year
Digital Realty has been a public company for two decades, but never had a fundraising year like 2024. The company is an investment trust that builds data centers for rent to corporate clients. It raised $8.5 billion last year selling stock and debt to fund its AI-fueled growth, a 25% jump from 2023.
The flurry of dealmaking shows no signs of slowing. In the past four months, the company raised $4 billion by selling euro-denominated bonds, stock and convertible bonds. In 2023, it raised about $1.4 billion through commercial mortgage-backed securities.
Also in 2023, it formed a venture with private-equity giant Blackstone to develop $7 billion in data centers. Blackstone has an 80% ownership stake in the venture and made an initial capital contribution of $700 million.
The fundraising frenzy has kept members of Digital Realty’s finance team up for some all-nighters.
“There’s always last-minute things that need to be buttoned up, information that needs to flow back and forth, conversations that you’re having with banks and investors to bring in and close the deal,” said Matt Mercier, chief financial officer of Digital Realty.
Facebook’s green energy
When Silicon Ranch started building solar-panel farms in 2011, landing a contract to build a one-megawatt project to power a Walmart store was a huge win. The Nashville, Tenn.-based company turned to a local bank for construction loans and help financing tax credits from the project, said co-founder and Chief Executive Officer Reagan Farr.
Now the company is building or operating 16 solar farms that generate 1,500 megawatts for Meta Platforms-owned data centers in Georgia and the Tennessee Valley. Each farm requires loans for hundreds of millions of dollars from national banks. The tax credits get sold to large corporations ranging from grocery chains to auto-parts suppliers.
Silicon Ranch, which is owned by private-equity firms and oil company Shell, is investing more than $3 billion into the projects. The money pays for land, equipment, transmission lines and labor, including herds of sheep used to trim grass that would otherwise block panels from sunlight.
Big as the sums are, they barely register to hyperscalers, Farr said. “My hyperscale colleagues are like, ‘$4 billion sounds like a lot, but that’s nothing to us,’” he said. “The average person doesn’t appreciate the scale of these infrastructure projects because we’ve not built like this in America since the interstate system.”
Silicon Ranch has turned to infrastructure investors to raise more cash, but even that likely won’t be big enough, Farr said. Ultimately, the company and others will need to tap the biggest pool of money there is, the U.S. stock market, he said.
Banking on CoreWeave
CoreWeave, a Nvidia affiliate, is preparing to test stock investors’ appetite. The company, fresh off a private fundraising binge, has hired JPMorgan Chase, Goldman Sachs and Morgan Stanley to lead its initial public stock offering.
Once focused on providing data centers for cryptocurrency, CoreWeave parlayed its access to Nvidia’s chips into a string of Wall Street deals that turned it into a hyperscaler virtually overnight.
In the past year, CoreWeave raised $1.1 billion of private equity from funds like Magnetar Capital and Fidelity, took out a $7.5 billion private-credit loan and issued an additional $650 million of private equity. It also took out a $650 million revolving loan—the corporate equivalent of a credit card—from the banks arranging its IPO.
Catherine O’Donnell runs JPMorgan’s tech leveraged-finance effort in San Francisco. She also led the bank’s energy lending team during the rise of oil and natural-gas fracking. In some ways investing in tech companies is even more complex, she said.
The bank focuses on picking companies that have a large head start over competitors and in making loans that amount to a fraction of the borrowers’ estimated valuations.
“You need to back the right companies because the disruption risk is much higher than in gas,” she said. “There’s always something new coming out.”
Source: https://www.wsj.com/tech/ai/ai-wall-street-investments-companies-0baba8d9?st=xHqpTV
